Innovation could return as economy improves

by Adam Smith10 Dec 2013
The Australian mortgage market could see a return of innovative product design as the economy improves, according to one industry figure.

AFM managing director David White told Australian Broker that innovative product design was curtailed by the GFC, but could return to the mortgage market as lenders become more confident in the economic environment.

"Lenders still need to look product variations especially when the property market is strong as it is today but as the property market and the general economy has been a little depressed over the last few years, lenders have been cautious to release new products. I think this will change as the economy improves and housing affordability still remains a big issue," White said.

The comments come following AFM's recent introduction of its Alternate Prime PLUS product allowing for up to 95% LVR with no LMI for loan amounts of $650,000. Instead, borrowers will pay a risk fee, which White said was "in line if not cheaper" than traditional LMI, and would be calculated the same regardless of whether the borrower had genuine savings.

"There are many reasons why this product will work in the market as we are targeting borrowers who may not have saved the full 5% genuine savings required for traditional LMI approval, but have also been paying high rent for their choice of suburbs to live. With this product, after a little help from Mum or Dad or a tax return, they will have enough funds to purchase rather than be trapped in rent cycle," White said.

In addition to the company's new product, White said lenders would have to look at other product variations to continue to innovate and help borrowers into the market.

"Shared equity loans have been successful in the past and will come back to the market as the property prices increase. Lenders should look at partners that they can introduce new products to market, like shared equity or insurance related products to provide more benefits, rather than just the rate and standard features. Many lenders are looking at these options right now"